February 25, 2013
Patient-Centric Initiatives Key to Profitability
By Annie Macios
For The Record
Vol. 25 No. 4 P. 6
While it may seem that profitability can be achieved through formulaic processes, some alternative ideas have been proven to make a difference with healthcare organizations’ bottom line. By adopting practices such as lean management, which eliminates waste and low-value activity, and becoming patient centric, hospitals can better maintain their profit margins in 2013.
Steve Levin, CEO of Connance, a company specializing in revenue cycle productivity, says that in the most basic terms, profit emerges when revenue outpaces the cost to do business and, subsequently, that revenue is converted into cash.
“In healthcare, to drive profitability it is important to look at each side—revenue and cost—separately,” he says. “Interestingly, revenue cycle is where the two come together, where spending converts that revenue to cash. The revenue cycle is therefore about improving cost-efficiency in that conversion. … I think of revenue cycle as cash return on investment: Every dollar in the cycle should generate multiples of cash to the operation. A cost of $1 in revenue cycle activity with a return of $0 in cash is a waste.”
Levin believes healthcare facilities can improve profitability by embracing tried-and-true processes, including finding where predictable waste lies, that have worked in other industries. For example, he says between 20% and 30% of all business interactions with self-pay or uninsured patients will never convert to cash, but time and resources nevertheless are spent attempting to collect money from this low-cash-yielding population.
“It is predictable which accounts being billed will not be successful, but this reality is commonly ignored,” he says. “Facilities are managing simply by total cost and missing where marginal investment has marginal benefit. Revenue cycle operations can add cash to the bottom line by reallocating resources and along the way improve patient satisfaction with the business office.”
With the passage of the Affordable Care Act, the industry is becoming more focused on the patient-provider relationship. In terms of dealing with the public, a facility’s business office is often front and center. “Comparing it with a hotel experience, how do registration and checkout impact the quality of your experience? What is the equivalent in a healthcare provider context?” Levin asks.
Revenue cycle and billing interactions influence how patients view their hospital and clinical experiences, according to Levin. If one-fourth or one-third of consumers feel “very unsatisfied” with their business office interaction, it creates a negative perception, leading the facility to spend more time on customer service. By emphasizing a patient-centric approach, he says facilities will not only satisfy consumers, but they’ll also eliminate waste and deliver substantial cash productivity gains.
Segmentation, a concept that helps predict where to best spend resources and time, also can boost patient satisfaction. “By taking a big bucket of things and breaking it down to those that share something in common, we can address clients’ needs and deliver on them specifically,” Levin says, adding that segmenting requires looking at a facility not as an undifferentiated group of patients or doctors but rather as a place where unique interactions and experiences take precedent.
“However, one of the biggest failures is segmenting based on what hospitals care about rather than what the customers care about,” he notes. “For example, with self-pay, all patients might not have similar experiences, so segmentation needs to be based on the requirements patients need to resolve a bill. In a consumer market, this is being consumer centric. We need an industry that starts to understand what consumer-centric healthcare means.”
Taking a Chance
Levin points to the pressures executives are under to stay on budget to the extent that it keeps them from exploring new strategies or the possibility of high-yielding investments. “An executive might think, ‘This program has a great return on investment, but I can’t buy it because I have no budget for it.’ It doesn’t make sense,” he says. “To create more profitability, they must think about marginal investment and marginal return.”
Many executives have been so inundated by vendors offering solutions that it has made it difficult to differentiate the best products from less valuable ones. “This has led to a systematic hesitance to try something new, as they don’t get rewarded for trying something new as long as they deliver cash on the budget,” says Levin, who believes that to ensure profitability, executives must have the energy to innovate and take well-calculated risks. “They can drive change. Don’t leave value on the table by being too cautious. Don’t hold innovation at bay because the focus is only around cost and not trusting new ideas.”
The ‘P’ Word
Prashant Kumar, president and CEO of MLC & Associates, a consulting firm based in Costa Mesa, California, says associating profitability with hospitals is not always viewed positively, especially considering that many are either not-for-profit or government run. “Just by the nature of the business, the vision and core values of healthcare professionals are not driven by profitability, which is a good thing from a patient perspective,” he says. “However, it is important to look at how to get hospitals to lower costs and increase revenues. What perspective do you take? Strategic? Technical? Operational?”
When trying to reduce costs, hospitals often implement cost-cutting measures, such as reducing personnel, but that strategy doesn’t necessarily produce long-term results. “We think one long-term view is becoming more outcome oriented, which is also something that legislation is moving toward,” Kumar says. “But how do you define the outcomes? Once you identify the true outcomes and monitor them, you will end up with the efficiency and profitability falling into place.”
In addition to identifying key outcomes, Kumar recommends implementing programs such as Lean Six Sigma, a philosophy whose core idea emphasizes maximizing customer value while minimizing waste. In healthcare, however, adopting this type of strategy isn’t easy. To help combat reluctance, Kumar says hospitals must identify their core aspects or competencies and their related key processes when employing lean concepts.
While working with facilities to improve efficiency, Kumar examines all processes along the patient cycle, identifies bottlenecks and challenges, and implements outcome-oriented solutions to improve performance and long-term revenue.
“For hospitals, it works best to implement lean a little at a time,” he says. “It is at the right place to use now in hospitals because it is patient centric. The goal of lean is to improve the healthcare experience and spend more quality time with patients. Healthcare practitioners can rally around this strategy as opposed to simply implementing administrative changes intended to cut costs.”
The push toward meaningful EHR adoption presents healthcare organizations with another opportunity to boost profits and improve efficiency. However, Kumar says many facilities implementing new systems make technology purchases for individual departments, ignoring the fact that the product probably doesn’t interface across the organization. This results in additional technology costs and a duplication of efforts.
To address this issue, Kumar recommends establishing an enterprise project management office to consolidate projects and avoid performing the same tasks more than once. The result should be a smoother-running operation and better care.
“Once hospitals start to improve outcomes and can publish that information to the public, they can increase revenue as well as the outcomes,” Kumar says. “They just have to look at things from the proper perspective to meet their financial goals.”
— Annie Macios is a freelance writer based in Calgary, Alberta, Canada.